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Who shot JR? Tips for good succession planning

May 23, 2019

Like in the hit 80s TV show Dallas, drama in a family business is almost unavoidable. That doesn’t mean you shouldn’t make a go at smart succession planning.

Ask a millennial who shot JR and you’ll be faced with a quizzical stare – who, or what, is a JR? Ask someone who grew up in the 1980s who shot JR and they’ll be able to tell you where they were when JR Ewing, star of the hit American TV series Dallas, was shot. Incredibly, 75% of all US households tuned in to see who killed oil baron and all-round bad guy.

However, after we found out Kristin Shepard, his sister-in-law, was the person who pulled the trigger, what kept viewers coming back to Dallas were the sub-plots of a family business constantly at war. Lawyers will tell you, “Where there’s a will, there’s a family.” Accountants, less prosaically, will advise: “Where there’s a family business, get a family agreement.”

Families can, and do, fall out. Psychologists and family therapists have sent their kids to expensive colleges on the back of in-fighting in family businesses. Part-owners are forever trying to understand their siblings, and what makes them – in their minds – wholly unreasonable. I’m no psychologist, but I’ve had plenty of family business drama shared in our boardroom. Families fall out over, inter alia, sibling rivalry, conflict with in-laws and simple estrangement over time. But, the big issue is always inheritance – a simple word, but one that has kept the Four Courts busy since opening for business.

I’ve dedicated part of my professional life to avoiding these inheritance wars. And, though the situation is improving, bad things do happen – sometimes due to serious illness or death of an owner, other times where little or no succession preparation is made. Sometimes it just happens. This can lead to what sports players call ‘unforced errors’ – a spouse, who may not be wholly familiar with the business, suddenly making key decisions that can, in turn, lead to families falling out when those decisions don’t go their way. Often, too, there’s no provision made for the retirement of the business owner or their spouse. These situations can be difficult.

I’m always taken aback by the statistic that fewer than 5% of family businesses get to the third generation. It’s clear that without a plan, succession can be difficult or nigh on impossible.

Smart rules of succession

When planning for succession, there are some rules that should be followed if it’s going to be drama-free:

  • Statement of Affairs: No succession should occur unless sufficient provision is made for the business owner and spouse. This means looking at their Statement of Affairs, including plans for company pensions, etc.
  • Management succession: The most important decision to protect the business is to ensure management succession. This is not about ownership of the business, and this distinction should not be misunderstood. The big challenge here is to find the “right person for the job”.
  • Family agreement: Get a family agreement in place as early as possible. The details of a family agreement will be different for each situation, although ideally it would refer to the following:
    • Family buy-in to protect the business and the commitment of all children (including those not working in the business); and
    • Structures to professionalise the business, funding of retirement, wills and overall succession planning, transition plan and timetable.

Follow these rules and you may fare better than poor old JR.

Michael O’Leary is Tax Partner at JPA Brenson Lawlor.